German businesses more upbeat than investors

Ifo poll of businesses shows mild decline in German sentiment

LONDON (MarketWatch) -- German businesses are more upbeat on the country's economy than investors, according to sentiment polls released this week.

The Ifo business climate index fell slightly in August to 105.0 from 105.6 in July, according to data released Thursday. That decline still has the index within striking distance of the 106.8 level, which marks a 16-year high.

The result from the poll by the Ifo Institute, which surveys around 7,000 companies, contrasts sharply with that of a poll by the ZEW Institute, which polls over 300 fund managers and analysts.

The ZEW's poll reached a five-year low after its measure of German economic sentiment fell to -5.6 in August from +15.2 in July. That survey was released on Tuesday.

The drop was blamed on several factors, among them concerns that U.S. demand for German exports may decline in the second half of the year, the strength of the euro currency and next year's planned increase in value-added taxes. Read story on ZEW release.

However, the Ifo Institute concluded that the Germany economic recovery "remains robust."

Still, businesses were more pessimistic than a month ago, with the expectations subcomponent of the poll falling to 101.5 from 102.6.

"Both building contractors and wholesalers were more reserved regarding the business outlook than in July," the Ifo concluded.

One analyst -- admittedly, data show they're the pessimistic ones -- said economic growth should fall in the first quarter of 2007 on the impact from the hike in the value-added tax.

"The current level of the Ifo still looks overstated in our view, despite the recent strong growth data. And we should see further noticeable declines over the coming months," said Alexander Koch, an economist at German bank HVB. See more global markets coverage.

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